The East Moriches Union Free School District (District) is governed by the Board of Education (Board) which comprises five elected members. The Board is responsible for the general management and control of the District’s financial and educational affairs. The Superintendent of Schools (Superintendent) is the chief executive officer of the District and is responsible, along with other administrative staff, for the day-to-day management of the District under the direction of the Board.

Scope and Objective

The objectives of our audit were to examine the District’s financial condition and internal controls over cash disbursements and claims processing for the period July 1, 2004 to April 30, 2006. Our audit addressed the following related questions:

• Did District officials accurately record and report the financial activities of the District to allow for timely evaluation of the District’s financial condition?

• Do internal controls over cash disbursements and claims processing protect and account for District assets?

Audit Results

District officials did not accurately record and report the financial activities of the District to allow the Board to monitor and evaluate the District’s financial condition in a timely manner. As a result, the District’s general fund’s balance deteriorated from a positive balance at June 30, 2004 to a deficit of $3.2 million as of June 30, 2006. The deficit represented 15 percent of the $20 million budget for the 2006-07 fiscal year.

District officials failed to regularly provide the Board with reliable financial data. At the close of the 2004-05 fiscal year, the prior Superintendent told the Board that the District would end the year with a $1 million operating surplus and a significant fund balance. However, the District’s external auditor told the Board in October 2005 that as of June 30, 2005, there was a fund deficit of $389,114 — which was due in large part to an operating deficit of $1.3 million for the 2004-05 fiscal year. District budgeting practices, including consistently underestimating special education and debt service expenditures and failing to properly encumber funds, also increased the deficit.

As a result, the Board’s approved budget for 2005-06 did not address the District’s fund deficit, which increased to $3.2 million as of June 30, 2006. We attribute the District’s deteriorated financial condition to District officials’ poor budgeting, over-expenditure of appropriations, and to their failure to maintain accurate financial information and to report such information to the Board in a timely manner.

The District has poor accountability over its cash disbursements because its internal controls over the cash disbursement process are operating ineffectively, and because District officials have not provided adequate supervisory oversight over the process or its internal controls. Ten percent of the checks (351 checks) issued by the District during our audit period were hand-written. In our review of those 351 hand-written checks, we found that District officials were unable to locate claim vouchers supporting 10 hand-written checks totaling $490,432, the records pertaining to five checks were incomplete, and that there were discrepancies between vendor names written on 30 checks and the vendor names entered in the accounting records. We also found that the District made a duplicate payment of $4,530 — which it since has recovered — due to its practice of not issuing stop payment orders for voided checks that are not in its possession.

The District’s claims auditor is not conducting a deliberate and thorough review of each claim. District employees circumvented the claims audit process by posting 110 checks totaling $2.2 million onto warrants after the claims auditor prepared and signed the warrants, but without presenting the claims to the claims auditor for review. In addition, because the District is making payments based on copied, rather than original, invoices, the District made a $228 duplicate payment to an architectural firm.

District personnel do not regularly use approved purchase orders when procuring goods and services. In addition, we found that an employee did not disclose his interest in a $3,003 contract with the District.

Comments of District Officials

The results of our audit and recommendations have been discussed with District officials and their comments, which appear in Appendix A, have been considered in preparing this report. District officials generally agreed with our recommendations and indicated that they planned to take corrective action.

Complete Audit in PDF